Issuance of 16% FCI shares in Tanzania
I am a newly appointed Chief Operations Officer (COO) in a holding company in a foreign jurisdiction. Our company wholly owns mining companies in three countries in Africa. As part of enlarging its investments in Africa, our company’s Board of Directors resolved to invest in Tanzania’s mining sector by applying for a Prospecting Licence. Now that commercially viable mineral deposits have been discovered, we are planning to apply for a Special Mining Licence from the Mining Commission of Tanzania. However, as we plan to do so, we have heard of the requirement to issue free carried interest (FCI) shares to the Government. As a company’s COO, I wish to understand the amount of such free shares to be issued to the Government; whether the licensees are required to issue shares over and above the prescribed FCI shares; and whether the Government is legally required to provide justification for acquisition of FCI shares over and above the prescribed shares. Kindly guide me.
MM, Dar
We are aware of the requirement for mining companies holding Mining Licences (MLs) or Special Mining Licences (SMLs) to issue FCI shares to the Government of Tanzania (the Government). This requirement stems from section 10(1) of the Mining Act, [Cap. 123 R.E. 2019]. Under this provision, the Government is entitled to a minimum of 16% non-dilutable FCI shares in the capital of a mining company holding an ML or an SML depending on the type of minerals and the level of investment. This implies that 16% being the minimum percentage of FCI shares, the Government can acquire FCI shares over and above 16%. To implement this requirement, the Government issued the Mining (State Participation) Regulations, 2022. Under these Regulations, the Government’s participation in mining operations is through joint venture arrangement with ML or SML holders. On the one hand, in negotiating the percentage of FCI shares to be issued to the Government over and above 16%, the parties to the joint venture arrangement should take into consideration the extent of Government development of the public infrastructure servicing the mining venture, or any specific infrastructure put in place by the Government which is intended to make the particular venture feasible.
On the other hand, it is noted that for the purposes of acquisition of shares, the Mining Commission in consultation with the Government Shareholder and Tanzania Revenue Authority should from time to time determine the types of minerals or level of investment made by a holder of SML or ML in which the Government should be entitled to acquire the 16% non-dilutable FCI shares or more. This implies that the Government can acquire more than 16% FCI shares depending on the type of minerals, level of investment and the extent of Government development of the public infrastructure servicing the mining venture.
It is important to note that in addition to the 16% shares, the additional percentage of FCI shares depends on the negotiations between the Government and investors in terms of types of minerals which have not yet been listed yet; and the infrastructure development, which implies that the Government will need to justify the additional FCI shares over and above 16%. For example, if mineral type B justifies more FCI shares, the Government is expected to say why it should acquire more FCI shares from the mining company licensed to mine such type of mineral. This is the reason these Regulations, vide regulation 6, require ML and SML holders to initiate negotiations to enable the Government to be able to acquire shareholding in the mining venture. For further clarification, kindly contact the Mining Commission. Your lawyer can guide you further.
